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Dealing with the COVID-19 pandemic in Slovenia: simulations with a macroeconometric model

Author

Listed:
  • Klaus Weyerstrass

    (Institute for Advanced Studies, Macroeconomics and Business Cycles Group)

  • Dmitri Blueschke

    (Alpen-Adria-Universität Klagenfurt)

  • Reinhard Neck

    (Alpen-Adria-Universität Klagenfurt)

  • Miroslav Verbič

    (University of Ljubljana)

Abstract

In this paper we analyse the effectiveness of fiscal policies with respect to macroeconomic stabilisation during the COVID-19 pandemic in the small open economy of Slovenia. Using SLOPOL11, an econometric model of the Slovenian economy, we simulate the development of the its economy during the 2020s under alternative assumptions about future pandemic-related shocks. We also determine optimal fiscal policies to combat the effects of the pandemic and to stabilise the economy under two scenarios for the future course of developments under COVID-19. Our simulations show that those public spending measures that entail both demand- and supply-side effects are more effective at stimulating real GDP and increasing employment than pure demand-side measures. Successful stabilisation policies should thus contain a supply-side component in addition to a demand-side component.

Suggested Citation

  • Klaus Weyerstrass & Dmitri Blueschke & Reinhard Neck & Miroslav Verbič, 2023. "Dealing with the COVID-19 pandemic in Slovenia: simulations with a macroeconometric model," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(4), pages 853-881, November.
    • Handle: RePEc:kap:empiri:v:50:y:2023:i:4:d:10.1007_s10663-023-09591-y
    DOI: 10.1007/s10663-023-09591-y
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    References listed on IDEAS

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    1. Reinhard Neck & Klaus Weyerstrass & Dmitri Blueschke & Miroslav Verbič, 2021. "Demand-side or supply-side stabilisation policies in a small euro area economy: a case study for Slovenia," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(3), pages 593-610, August.
    2. Caulkins, Jonathan P. & Grass, Dieter & Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M. & Prskawetz, Alexia & Seidl, Andrea & Wrzaczek, Stefan, 2021. "The optimal lockdown intensity for COVID-19," Journal of Mathematical Economics, Elsevier, vol. 93(C).
    3. Bonadio, Barthélémy & Huo, Zhen & Levchenko, Andrei A. & Pandalai-Nayar, Nitya, 2021. "Global supply chains in the pandemic," Journal of International Economics, Elsevier, vol. 133(C).
    4. Daron Acemoglu & Victor Chernozhukov & Iván Werning & Michael D. Whinston, 2021. "Optimal Targeted Lockdowns in a Multigroup SIR Model," American Economic Review: Insights, American Economic Association, vol. 3(4), pages 487-502, December.
    5. Reinhard Neck & Klaus Weyerstrass & Dmitri Blueschke & Boris Majcen & Andrej Srakar & Miroslav Verbič, 2018. "How to Achieve the Take-off into Sustained Growth: A Case Study for Slovenia," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 24(2), pages 109-121, May.
    6. Klaus Weyerstraß, 2021. "Fiscal Policies during the Covid-19 Crisis in Austria - A Macroeconomic Assessment," EconPol Policy Reports 32, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    7. Fabio Milani, 2021. "COVID-19 outbreak, social response, and early economic effects: a global VAR analysis of cross-country interdependencies," Journal of Population Economics, Springer;European Society for Population Economics, vol. 34(1), pages 223-252, January.
    8. Klaus Weyerstrass & Reinhard Neck & Dmitri Blueschke & Boris Majcen & Andrej Srakar & Miroslav VerbiÄ, 2020. "Stabilisation policies in a small Euro area economy: taxes or expenditures? A case study for Slovenia," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 10(4), pages 309-327.
    9. David Baqaee & Emmanuel Farhi, 2022. "Supply and Demand in Disaggregated Keynesian Economies with an Application to the COVID-19 Crisis," American Economic Review, American Economic Association, vol. 112(5), pages 1397-1436, May.
    10. Alan J. Auerbach & William G. Gale & Byron Lutz & Louise Sheiner, 2020. "Effects of COVID-19 on Federal, State, and Local Government Budgets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(3 (Fall)), pages 229-278.
    11. Wallenius, Hannele, 1982. "Optimizing macroeconomic policy: A review of approaches and applications," European Journal of Operational Research, Elsevier, vol. 10(3), pages 221-228, July.
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    Cited by:

    1. Dmitri Blueschke & Klaus Weyerstrass & Reinhard Neck, 2024. "How can the preferences of policy makers be operationalised in optimum control problems with macroeconometric models? A case study for Slovenian fiscal policies," Public Sector Economics, Institute of Public Finance, vol. 48(2), pages 151-169.

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    More about this item

    Keywords

    Macroeconomics; Stabilisation policy; Fiscal policy; Policy optimisation; Tax policy; Public expenditure; Demand management; Supply-side policies; Slovenia; Public debt;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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